China’s economy began 2026 slightly better than expected, supported by a sharp rise in exports. As a result, the current account surplus, already very high, is expected to increase further this quarter.
Financial sector data indicate that Chinese banks are mainly recycling these surpluses by buying foreign assets. This activity suggests the banking sector is intervening in the exchange rate by purchasing foreign-currency assets to weaken the CNY.
Export Led Growth And External Surplus
Commodity price trends indicate producer prices could turn positive year-on-year as early as March. The GDP deflator is expected to turn positive by the second quarter at the latest.
The Chinese economy has started 2026 stronger than many anticipated, largely due to robust export performance. Official data for the first two months of the year showed exports surging by 10.2% compared to the same period in 2025. This has helped swell the current account surplus to an estimated $120 billion for the first quarter.
We are seeing state-linked banks actively recycle these surpluses into foreign assets, which is capping the yuan’s strength. The PBoC’s foreign exchange reserves increased by only a modest $15 billion in the first quarter, a figure far smaller than the current account surplus, which suggests significant capital is being moved elsewhere to manage the exchange rate. For derivatives traders, this signals that betting on significant CNY appreciation is risky, and strategies profiting from a range-bound or slightly weaker currency may be more prudent.
The trend of rising commodity prices is successfully ending the period of deflation we saw for much of 2025. The Producer Price Index for March 2026 confirmed this, rising 0.5% year-over-year for its first positive reading in over twelve months. This shift should support corporate profitability and pricing power in the quarters ahead.
Trade And Policy Signals For Positioning
This exit from deflation is a bullish signal for industrial commodities, and we should consider long positions in copper and iron ore derivatives. Simultaneously, the combination of strong exports and a managed currency is beneficial for Chinese equities. We could therefore look at buying call options on major Chinese stock indices to capitalize on expected earnings growth.
